Singapore's GIC reported annualized, nominal gains of 12.4% for the five years ended March 31, even as the sovereign wealth fund warned that capital markets aren't likely to be anywhere near that generous in the years to come.
The latest double-digit advance marked a dramatic improvement from annualized gains of 2.6% for the five years through March 31, 2013, as the worst of the declines from the global financial crisis rolled off the GIC's tally.
But in its annual report, Lim Siong Guan, GIC's group president, and Lim Chow Kiat, its group chief investment officer, concluded “unconventional monetary policies” by leading central banks had been more successful at boosting asset prices than at improving the outlook for economic growth and corporate earnings.
“Current high prices in financial markets portend weaker future returns, including possibly negative returns at some point,” said the two GIC executives. Those diminished prospects are common “to all major asset classes: public equities private equity, bonds and real estate,” they added.
According to the annual report, as a long-term investor, GIC focuses primarily on its portfolio's rolling, inflation-adjusted 20-year returns, in U.S dollar terms. That return edged up to 4.1% for the period through March 31, from 4% for the 20 years through March 31, 2013.
With the investment outlook for the coming decade looking “more challenging for global investors, including the GIC,” the annual report's investment section predicted the GIC's rolling, 20-year real returns should “remain modest, at around current levels.”
The overall value of the GIC portfolio is a state secret. For years now, the GIC will only say that the portfolio is valued at well over US$100 billion. By some estimates, the portfolio's value now stands at more than US$300 billion.
In line with its long-term focus, GIC doesn't release 12-month investment results. It does, however, detail changes in the fund's asset allocation for the past year.
For the latest year, allocations to developed market equities saw the biggest drop, to 29% of the portfolio from 36% as of March 31, 2013, even as emerging markets equities — whose gains have lagged those of developed markets — rose to 19% from 17%.
Fixed income, meanwhile, garnered additional flows, with allocations to nominal bonds and cash rising to 31% from 29%, and inflation-linked bonds climbing to 5% from 2%.
GIC's allocations to private equity rose to 9% from 8%, while allocations to real estate dropped to 7% from 8%.
By region, the GIC's allocations to Europe saw the biggest gain, climbing to 29% of the overall portfolio from 25% the year before. Allocations to the U.S. market edged down to 34% from 36%, accounting for the drop in GIC's “Americas” holdings to 42% from 44%.
The GIC's allocations to Asia, meanwhile, slipped to 27% from 28%, while its holdings in Australasia dropped to 2% from 3%.